Why April is a must month for client annuity reviews
By Kevin Startt
Through focusing on seasonality, the client's returns can be enhanced. Be a master of your client’s destiny by following this age-old market-timing strategy that does work.
There’s an old story about a client who went to visit his financial advisor and was amazed to find him playing chess with a dog. The client watched the game in astonishment for a while. “I can’t believe my eyes!” he exclaimed. "That’s the smartest dog I’ve ever seen.”
"Nah, he’s not that smart. He’s only beaten me three times out of five.”
An advisor who sells index annuities, indexed life or securities should be keenly aware of the benefit and should be smarter than the above advisor, by sending out a letter encouraging their policyholders to choose an October through April anniversary date for their contracts. In addition, like the old adage, “Sell in May and go away,” seasonality affects the performance of index contracts, especially annual point-to-point contracts. It is also a great opportunity — before the proverbial “spring swoon” that has occurred the last four years — to get the good news of contractual performance of the winter months in front of your best clients and ask for referrals or additional deposits at annual review time. In fact, this is the opportune time right now for annual reviews with both referral partners and clients.
Selling in May and going away has been described by some pundits as a market-timing strategy but can really be explained by the simple law of supply and demand. Savers, investors and institutions typically put more money into the winter months and take it out during the summer months due to the IRA, 401(k) matchs, tax season, pension contributions and portfolio window dressing. Insurance advisors can’t go out of business for six months but can focus on non-market related products, like traditional life insurance and MYGA, that are not affected by seasonality. In addition, after choosing the hot months to contract on a FIUL or FIA product, the client can always rebalance and allocate money to a fixed account during the cold, dark days of winter and spring swoon. So, how big is the difference between anniversary dates chosen in winter and summer months? Huge, to say the least. This year has been a great example of how huge, as the Dow has gained nearly 12 percent, while last year during the spring and summer swoon, Dow lost 0.9 percent. The year before, 2011, the results were similar. Overall for the last 50 years, the Dow has produced a gain of 7.5 percent during the winter months, according to the Wall Street Journal, and lost 0.1 percent during the winter months. This seasonality pattern even exists in studies done on 108 world markets, with some statistical tests dating back to 1694 in the U.K. Finally, evidence shows that the gap continues to get bigger and bigger over time.
So, understanding these patterns can give you a competitive edge over the advisors whose definition of financial needs analysis is that they need a sale every day. Consider this fact: Foregoing a sale for six months historically means that your client’s money never doubles, even though they get their money back while inflation erodes their purchasing power.
Through focusing on seasonality, the client's returns can be enhanced. In which case do you think your client would be happier and refer more business? Be a master of your client’s destiny by following this age-old market-timing strategy that does work. One golfer joked about Tiger Woods's dominance by saying if you play in a golf tournament that Tiger did not play in, there should be an asterisk next to your name. Don’t have clients put an asterisk next to your name by not using common sense on client deposit dates on FIA and FIULs.
Editor's Note: The article originally stated: "Through focusing on indexed products during the fall and winter months, the client’s money doubles every six years. Be a master of your client’s destiny by following this age-old market-timing strategy that does work." At the author's request, it has been corrected to read: "Through focusing on seasonality, the client's returns can be enhanced."